Kingfisher, which has not flown since October, has estimated debts of $2.5 billion and owes money to banks, airports, tax authorities, plane leasing companies and its staff.

The Directorate General of Civil Aviation, India's aviation regulator, suspended Kingfisher's licence to fly in October after months of cancelled flights and staff walkouts.

The carrier can apply to renew its licence within two years from the day it expires, the source, who has direct knowledge but did not wish to be identified, told reporters.

Kingfisher has tried unsuccessfully to raise cash for more than a year. It said earlier this month it was in talks with Abu Dhabi's Etihad Airways and other investors about taking a stake in the carrier.

Plane leasing firm International Lease Finance Corp ILFC.L is seeking to take back four Kingfisher planes, the source said.

Indian tax authorities last week impounded a plane in Kingfisher colours, but DGCA will seek the return of the aircraft, the source added.

ILFC, which is owned by U.S. insurer AIG (AIG.N), is being sold to a Chinese consortium for up to $4.8 billion.

Kingfisher said on Monday it will "restart in a phased manner," with its own funding, and will not seek banks' support. For it to restart operations, DGCA has to be satisfied with its turnaround plan, the source said. (Editing by David Cowell)

• A Permanent Economic Emergency